Goldman Sachs vs UBS: It's too close to call (repeat)

This is a rerun of one of our most read stories in 2006. It describes how UBS was closing in on Goldman in the Asia ex-Japan ECM league tables and, with six weeks left of the year, was in a position to top the tables for the first time ever.

While more than three years old, this story heralded a potential shift in the Asia primary equity markets with a new firm rising to the top of the rankings. It is interesting not only as a review of the market at the time, but because we are seeing much the same fight for dominance right now, only this time it is UBS that is the incumbent and Goldman that is coming from behind to try and reclaim the number one position.

With six weeks left to Christmas it is already clear that 2006 will be a record year for equity issuance in Asia ex-Japan. As of yesterday, Dealogic counts $95.8 billion worth of deals already completed compared with $94.4 billion in 2005 which was the previous high for a single year.

Unless global equity markets come to another screeching halt over the next few weeks (like in May) the visible deals in the pipeline should easily push the 2006 issuance above the $100 billion mark - helped obviously by ICBC's record-breaking IPO last month.

And, equally, it will be interesting to see who will clinch the top spot in the league tables this year. Goldman Sachs has occupied the number one position for the entire year with UBS trailing slightly behind, but the Swiss firm has been closing in and it now looks quite feasible that it could finally make it all the way.

If so, it would be the first time that UBS has come out on top in the ECM league table in Asia (excluding Japan and Australia). Last year it was second behind Morgan Stanley after moving gradually up the list since 2000 when it was eighth. Goldman Sachs, on the other hand, has been consistently in the top three in the past six years and number one in 2000, 2002 and 2004.

Including Australia, (ie Asia-Pacific ex-Japan) UBS has topped the tables three times since 2001, including last year, compared with two times for Goldman. Both firms have been in the top three in each of the past five years.

As of yesterday (November 9), Goldman had accumulated $9.5 billion worth of ECM league table credits in Asia ex-Japan, compared with UBS' $8.6 billion. They are followed by Credit Suisse in third place with $7.3 billion worth of deals done so far.

Interestingly, neither of the top two banks was involved in this year's blockbuster deal from Industrial and Commercial Bank of China, which at $21.1 billion was also the world's largest IPO ever. However, they were both on Bank of China's $11.2 billion IPO, which will be the second largest equity offering in 2006 and which from a league table perspective actually gave the bookrunners a bigger boost.

The reason for that is that the BOC offering was handled by only three banks, while the $12.5 billion H-share portion of ICBC's IPO (excluding the portion of the deal that went to corporate investors) was split between five bookrunners. Part of BOC's offering also went to corporate investors which left $8.44 billion worth of league table credits to divide between the three arrangers.

While Goldman and UBS are close together in terms of volume, though, the two firms have somewhat different business models, which is evident from the fact that Goldman has done only 28 deals this year, while UBS has done 42.

UBS has an on-the-ground presence in more countries in Asia, which is resulting in its portfolio of deals being more varied both in terms of geography and size. It also does more overnight block trades which typically pay less fees than IPOs, but also require less work. In addition, UBS has been more active with regard to CBs this year, although neither firm is in the top five for equity-linked issuance.

Goldman's issuance portfolio this year is weighted towards larger deals, many of which are the result of long-term client relationships, but it has also worked on a range of mid-sized deals, including a series of Nasdaq IPOs. Among the offerings it has been involved in are the IPOs for Lotte Shopping in Korea and Shimao Properties in Hong Kong, Temasek's sell-down of a stake in SingTel, the follow-on offering by CNOOC and Nasdaq IPOs for Korean online auction company Gmarket and China-based New Oriental Education.

The list of deals that UBS has been involved in include IPOs for China Merchants Bank in Hong Kong, Indian outsourcing firm WNS in New York, Reliance Petroleum in India and the Singapore listings for Indonesian shipping firm Berlian Laju Tanker and Thai resort operator Banyan Tree. It also worked on the Korean creditor sell-down in Hynix and on Khazanah's Islamic exchangeable bond in Malaysia.

Both banks had bookrunner roles on Chunghwa Telecom's ADR, Commerzbank's divestment of Korea Exchange Bank and Chinese medical device maker Mindray's Nasdaq IPO.

"We don't just try and do the biggest deal in each market, we try to service the best companies in every sector in that market," says Steven Barg, head of ECM for Asia-Pacific at UBS. "Whether it is property developers in the Philippines, trading companies in Singapore or high-technology companies in India, there is a depth and a breadth to our platform that I think our clients really appreciate."

Barg attributes the firm's success to the strength and breadth of its distribution which is supported by the bank's daily dealings with the buy-side through its equity brokerage business.

"When you look at our equity platform, we are rated highly in just about every market and we have few competitors when it comes to the number of markets where we are active in research, sales and trading. And if we serve our customers well on the distribution side, then that makes it relatively straight forward for us to be a primary issuance bank of choice."

The visible pipeline for each of the two banks suggests Goldman should be able to retain the top spot by a modest margin, but a lot can still happen and most of the deals that lay ahead still need regulatory approval which means they could quite easily be pushed into next year. Also, the fact that UBS is more active with regard to block trades would indicate it is likely to capture a bigger share of the non-visible pipeline than its US rival.

That said, Goldman did do a $157 million top-up placement for dry bulk shipping firm Pacific Basin earlier this week on a fully underwritten basis, which resulted in the gap versus UBS widening slightly.

Goldman is also currently pre-marketing a GDR issue of $1 billion to $1.5 billion for Pakistan's Oil and Gas Development together with Citigroup. Also likely to come this year is the spin-off of 25% of Kingboard Chemical Holdings' laminate business, which could raise about $400 million. In a statement issued late last week, Kingboard said the plan is for the new company to start trading on December 7. Goldman is the sole bookrunner and sponsor.

Meanwhile, UBS and Cazenove Asia started pre-marketing this week of an IPO of around $250 million for Chinese gold miner Zhaojin Mining Industry, with a listing scheduled for early December. UBS was also in the market last night with a $120 million placement for Road King Infrastructure.

The Zurich-based investment bank is also joint bookrunner with Merrill Lynch for China Communications Construction Group's IPO, which is scheduled for December and expected to raise about $1.5 billion. And it is one of three joint arrangers for the $150 million CapitaLand-sponsored CapitaRetail China Trust which is expected to be completed by mid-December.

This would suggest just over $1 billion worth of league table credits for UBS and about $900 million to $1.1 billion for Goldman.

Goldman also has another potential deal up its sleeve in the form of a Reit IPO sponsored by Regal Hotels for which it has a joint bookrunner mandate with Merrill Lynch and Deutsche Bank. The IPO, which has yet to be approved by Hong Kong regulators, is expected to raise between $400 million and $500 million. Countering that, UBS is joint bookrunner together with BNP Paribas on Jinjiang International Hotel's Hong Kong IPO, which could raise about $300 million. That deal has been held up for various reasons, but sources say it is now "highly likely" to come before the end of the year.

Whichever bank does end up in the top spot six weeks down the road, it is clear the margin to the runner-up will be very thin. Still, for marketing purposes saying you were number one does ring a bit better than saying you were surpassed to number two by the smallest of margins.

On the other hand, one could question how much the league tables actually mean in terms of bringing in new business and all banks tend to stress that they look equally much at their share of the revenue pie.

And as noted by Goldman's regional co-head of ECM, David Ryan, whether a deal falls in December or January may have an impact on a bank's final league table position, but will have no bearing on the success of the transaction.

"The league tables are really a series of one-year games and whatever happens we start all over again in January," he says. "From a pride perspective, we always like to come out on top, but the consistency from year to year is the most important and we want to make sure that we are in the running for the number one position every year."

Behind Goldman and UBS in the top two spots, there is also likely to be a tight race for the third place with five banks currently within a $1.5 billion range. Credit Suisse has made a big move from seventh to third after completing four placements in less than a week and is now about $900 million ahead of Deutsche Bank in number four.

Positions five through seven are currently occupied by Merrill Lynch, Citigroup and JPMorgan. 

Don't rememeber how the "race" ended? Check out the league tables from 2006, which, as part of our 10th anniversary coverage, are also rerun on our website today.

¬ Haymarket Media Limited. All rights reserved.
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